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Analysis and Prediction:

Date of publication: August 13, 2018 | Author: Tim Clayton

Last Week’s Summary

Weekly Review - Financial world news


US consumer prices data met consensus forecasts with the headline annual inflation rate remaining at 2.9% while the core rate increased to 2.4% from 2.3%.

Other releases had little overall impact despite a decline in jobless claims.

Federal Reserve officials maintained an optimistic stance on the economy and continued to promote further gradual interest rate hikes.

The data impact was overshadowed by sharp market moves as fears surrounding Turkey increased dramatically.

Why did Turkey move the markets?

The Turkish lira has been under pressure for some time which has caused some concern, although the wider impact was limited.

Lira losses accelerated sharply on Friday with the currency dropping over 15% on the day amid a lack of confidence in President Erdogan and his economic policies. This extreme move increased fears that contagion would spread to other emerging markets. As market fears intensified, there was increased demand for defensive assets. In this environment, there was demand for the dollar, yen and Swiss franc as well as US Treasuries.

Market fears were fuelled by concerns that losses in Turkey would undermine the Euro-zone banking sector.

President Trump’s decision to double tariffs on Turkish steel and aluminium exports also fuelled market selling.

Latest Reuters report on Turkey


UK GDP data met consensus forecasts with a 0.4% advance for the second quarter following 0.2% growth for the first quarter. The manufacturing output data was also slightly stronger than expected and the trade deficit narrowed.

Although the data provided an element of relief, political events dominated during the week.

Market concerns surrounding the risks of a ‘no-deal’ Brexit increased further which triggered notable selling pressure on Sterling.

Moves were amplified by a lack of liquidity with wider concerns surrounding risk appetite also a factor undermining the UK currency.

There were 13-month lows below 1.2750 against the dollar, although the UK currency did recover from 9-month lows against the Euro.


There were no significant Euro-zone data releases during the week and only limited comments from ECB officials as the holiday season dominated.

After a dull start to the week, volatility exploded higher as Turkish fears dominated.


The Reserve Bank of Australia maintained interest rates at 1.50% and the overall policy statement was little changed with the next move in rates expected to be an increase.

The Reserve Bank of New Zealand also maintained interest rates at 1.75%, in line with consensus forecasts. The bank statement was, however, more dovish than expected with expectations that there will be no increase in rates until 2020. The statement helped trigger a sharp decline in the New Zealand dollar.

The Chinese yuan was able to secure a limited recovery during the week.

Headline Canadian employment data was stronger than expected with a July increase of over 54,000 for the month and unemployment declined to 5.8% from 6.0% the previous month. There was, however, a decline in full-time jobs and reaction was dominated by wider market moves.

Next Week’s Forecast & Events

Weekly forecast - Financial news

Volatility will remain higher

Liquidity will remain at very weak level during the US and European peak holiday season, maintaining the risks of high volatility, especially if risk aversion increases further.

Turkey will continue to be a key focus

After the Turkey-inspired dollar surge and Euro slump at the end of last week, developments within Turkey and wider emerging markets trends will be very important in the week ahead.

The Turkish government will need to find a credible response to the crisis such as an IMF deal or markets will continue to sell the currency.

If the crisis deepens, emerging-market currencies and the Euro will be vulnerable while the dollar, yen and Swiss franc will remain strong.

Trump comments could be crucial

There is an important risk that President Trump will make comments on the currency markets, especially in view of the dollar surge. Commentary on trade and tariffs as well as the Turkish situation will also be potentially market moving. Any threats to weaken the dollar could push the currency sharply lower and reinforce high volatility.


The retail sales data is scheduled for Wednesday following very solid spending growth for the second quarter. The latest data on labour costs will be released at the same time and could have a larger market impact given the inflation implications.

Business confidence data will also be important and could have a pivotal impact on sentiment with markets looking for fresh evidence on potential trends in growth and prices. The New York Empire manufacturing data is due on Wednesday with the Philadelphia Fed index on Thursday.

Other releases include constriction data on Thursday and the University of Michigan consumer confidence index on Friday.


The domestic data releases will be significant, although the impact may be measured given that the Bank of England will not change monetary policy again in the short term.

The latest labour-market data will be released on Tuesday with the main focus on average earnings. Inflation data is due for release on Wednesday and is likely to have the largest impact while the retail sales data is scheduled for Thursday.

Brexit concerns will be important with Sterling needing evidence of a political breakthrough to recover ground.

High risks will continue, but if a ‘no-deal’ Brexit is avoided, these Sterling levels will be very attractive on a longer-term view.


Germany will release ZEW data on investor confidence, although data release are unlikely to have much of an impact.

Comments from ECB officials will be monitored closely given fears surrounding the banking sector.


The Australian employment data is due on Thursday with risk trends likely to dominate the Australian dollar during the week.

Canadian inflation data is due on Friday, although Canadian dollar developments are liable to be dominated by trade and geo-political considerations. The currency could gain some support if a NNAFTA deal is reached between the US, Canada and Mexico.

Currency Forecast for Next Week

Currency pair Spot 1-week forecast 1-month forecast
EUR/USD 1.138 1.130 1.160
USD/JPY 110.5 110.0 112.0
EUR/GBP 0.893 0.885 0.873
GBP/EUR 1.120 1.130 1.145
GBP/USD 1.274 1.277 1.329
AUD/USD 0.728 0.720 0.750
USD/CAD 1.316 1.305 1.295
USD/SGD 1.373 1.375 1.365
USD/HKD 7.850 7.850 7.850
NZD/USD 0.658 0.650 0.670
GBP/JPY 140.8 140.4 148.8
GBP/AUD 1.750 1.773 1.772
GBP/NZD 1.937 1.964 1.983
GBP/SGD 1.750 1.756 1.814
GBP/HKD 10.00 10.02 10.43
GBP/CHF 1.268 1.294 1.334


 timTim Clayton is a market analyst with more than 20 years of experience in the financial markets, with particular focus on currencies. Holds an economics degree from University of New York. Writes for multiple publications including and SeekingAlpha so he is on top of all the happening in the world of currencies and macro-economics. 

Information expressed in this article and on as a whole does not constitute as financial advice. If you decide to make any actions based on the information you read, we shall not be held responsible.


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